Pay Transparency as a Moving Target: A Multi-Step Model of Pay Compression, I-Deals, and Collectivist Shared Values



Pay transparency is an important issue in the workplace as it can promote fairness and help close pay gaps. However, our study reveals some unintended consequences of this practice. We surveyed over 100 medical device firms and discovered that as pay becomes more transparent, managers are more likely to avoid challenging discussions about pay differences by nudging everyone towards a standardised salary (pay compression), which often falls at the lower end of an acceptable range. Consequently, high-performing employees may seek alternative forms of recognition, leading to negotiations with their supervisors for personalised benefits and bonuses (i-deals). Ironically, this shift towards opaque negotiations concerning total compensation packages undermines efforts to reduce pay gaps, as managers may compensate employees in less transparent ways. Our study implies that while pay transparency can be a step towards a more equitable workplace, it is not a one-size-fits-all solution. Companies need to consider the broader implications of their compensation policies, including non-monetary rewards, and ensure that their efforts towards transparency truly promote fairness and understanding among employees.

Period1 Jun 2023

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